Introduction To Strategic Management PDF

Introduction to Strategic Management Class Discussion Questions, W\ answers. These answers are not meant to be complete, but are just a sketch of some of the important aspects of the answer. 1. What is strategic management?  Managin...

Introduction to Strategic Management Class Discussion Questions, W\ answers. These answers are not meant to be complete, but are just a sketch of some of the important aspects of the answer. 1. What is strategic management?  Managing an entire business or a corporation to achieve sustained superior performance. 2. What does superior performance mean?  Profitability (ROIC) & profit growth greater than that of most if not all others in the industry. 3. What does “sustained,” in sustained superior performance mean?  For a reasonably long time-- not a quarter or a year; for most industries it is a period of 5 to 7 years. 4. How are increasing profitability & profit growth related to increasing shareholder wealth?  Increased ROIC & profit growth leads to increased shareholder wealth (see appendix to Hill, Schilling & Jones, chapter 1 for details). 5. Are goals regarding profitability & profits the only ones that matter to a business?  No, but emphasis on profitability & profits is ESSENTIAL to ensuring business survival and to fulfilling its role within society  Emphasis on SUSTAINED superior profitability & profit growth ensures that stockholder interests are not advanced at the expense of other stakeholder interests 6. What are the two elements of strategic management?  Formulating strategy and implementing strategy. 7. How is corporate strategy different?  The focus of business strategy is on actions that a business can adopt and implement within its industry to achieve sustained superior performance.  The focus of corporate strategy involves questions of what businesses to be in and how to manage the interdependencies between them. 8. Who is responsible for formulating strategy?   The head of business has primary responsibility for business strategy. Heads of various functions in the business contribute. CEO has oversight responsibility.  Corporate strategy is the main responsibility of the CEO. Corporate officers and heads of businesses contribute. The board of directors has oversight responsibility. 9. When are strategies made or formulated?  When starting a business  Periodically  In response to large opportunities/threats, severe performance problems, and/or change in leadership 10. How are strategies formulated? Deliberate strategy formulation:  Articulating specific objectives (Increase ROIC to X% and profit growth by Y%. The X and Y would depend on where competitors are and where the firm has been in the past on these measures)  External environment analysis: search for opportunities and threats  Internal environment analysis: identify strengths and weaknesses  Develop and select from options that build on strengths and/or correct weaknesses to exploit opportunities and avoid threats. Emergent part of the processes:  Aspects of strategy are modified, dropped, or added in response to emerging ideas and learning that takes place within the organization. 11. How are strategies implemented?  Aligning organizational factors to implement strategy  Managing ongoing implementation process, learning, and adapting all of the organizational factors as well as strategy as need arise. 12. What is strategic thinking?  Thinking about and evaluating actions and events in terms of how they impact the business’s or Corporation’s pursuit of sustained superior performance. 13. If the road map for strategy formulation and implementation is well known, why do some companies do better than others?  Each step of the process involves making decisions with imperfect information.  These decisions are very difficult to “get right” even for the very best and most experienced.  Due to bounds on rationality, human decision processes suffer from biases.   Making adjustments to strategy or aspects of implementation is difficult because change is difficult. 14. What are the biases and how can one minimize their effects on strategic decision making and strategic thinking.  See Hill, Schilling & Jones, Chapter 1. How would one evaluate if a business has achieved sustained superior performance?  Obtain data to compute profitability (ROIC: ROA is a good proxy. ROA=Net Income/Total Assets) and profit growth (annual % change in net income) for the chosen company for a period of about 5 years  Identify who your competitors are  Obtain similar data for competition (average for companies in the industry, or average for the top 4 to 6 competitors in the industry)  Graph ROIC and profit growth for the chosen company and the competition  Draw your inference Note that a business could have declining ROIC and declining profit growth yet perform superior to competition. Note on calculating profit growth: When calculating profit growth, the general formula is [(Net Income or NI for this year - NI for last year)/NI for last year] *100. While this is the mathematically correct formula, when last year's (i.e., the base year's) profits are negative, the formula gives incorrect figures. So, only when the last year’s profits are negative [not in other cases], using the following formula provides more meaningful growth numbers: [(NI for this year + absolute value of NI for last year)/absolute value of NI for last year] *100. In essence you want to use the general formula for all instances except when the prior year's profits are negative. You can understand the above from the table below for Tesla (NI in $M). Company: Tesla Inc Year -year growth Year -year growth Year Net Income Typical formula Revised formula 2017 -2241 2018 -1063 -52.57% 52.57% 2019 -775 -27.09% 27.09% 2020 862 -211.23% 211.23% 2021 5644 554.76% 754.76% Cutting losses by nearly half from 2017 to 2018 shows up as -ve 52% growth using typical formula. This does not seem right. The revised formula, in contrast provides more meaningful numbers when prior year profits are negative. But when prior year profits are positive as in 2020, only the typical formula provides the right answer (554.76%).